13000 on Nifty in 2-3 yrs, 7700 in near term: Sushil Kedia

Latha: How do you look at the market at this point in time. We saw almost eight days of consecutive fall, some 600 points wiped off the Nifty. Are we finally finding our feet, are there any technical supports at this level?

A: What I would like to begin by saying is that after eight to nine days of decline, a point of inflation exists today. If the Relative Strength Index (RSI), which measures the momentum or the speed of fall with subsequent lower lows on the price — momentum not lowering down is like a car moving in the same direction but the speedometer is showing you receding readings — then a reversal is quite likely around. And then when you combine with this eight to nine days of fall and when you go to this daily chart again you notice this momentum divergence. So, I would say a rebound back up to 8500 is very much part of the normal trading noise. Should that be taken out, one would then say a trend reversal has really happened and I would say one should ideally not be taking new positions today and tomorrow when you are in a point of inflection, that is for the short term.

Sonia: So you say that once the market rebounds to 8500 then the trend could reverse. But up until then what could the downside in the near term look like? 

A: I would like to take the opportunity of refining myself. 8500 is what it can go up to but for a very short term trading signals what one ought to take a long position carefully. I follow the system where I would take a long position if I could see a higher closing on prior four days and if indeed if tomorrow markets closing is lower than yesterday’s close I will go and abandon this idea for potential reversal and inflection here and go the whole hog for playing to 7700. As a few technical experts have mentioned in the recent past that we are currently seeing a complex correction. In simpler words, a complex correction is one wherein you will find a lot of overlapping moves and not very large clear trends. So, to summarise this you have to be tentative; 200 points of noise is very much a part of the current levels of the market and trading signals are better taken on a rebound. On the short side, the medium term still looks like 7700 should come before 8500-8600 is seen.

Latha: Well you said only for the short term, that is how you qualified your previous answer. If you were to look further into time, say the next couple of quarters or even 2015 generally how are the markets shaping up? What is the likely probability, 7600 or 9000? 

A: Actually the 99 percent range if I can borrow such euphemism from statistics is that 7600-9000 is the real range, within which if I have to make a guess work, I would say while this correction has set in there are prospects that we should get closer to sub 7700-8000 and then go back to 9000. And allow me to jump in further on the longer term trend here. Whether it takes two years or two-and-half years, the Nifty trend is perhaps good to go all the way up to 13000, it can take a couple of years or more. I know a bullish statement looks good but you can go back and look at how things have been over the five-year period from 2007-08 high and then all the way up to this breakout in 2013, and basically this is true of almost all equity markets. After five-year consolidation, I can project 13000; those who practice point and figure charting will know that is the obvious target and people can go and plot that on their softwares.

Sonia: That will be music to the ears of a lot of investors, the fact that Nifty could go up to 13000 in the next couple of years. But what are the stocks that could actually lead it there because we have seen many of these names already correct about 15-20 percent from this year already, names like ICICI Bank etc. For the longer term what are the stocks that could take Nifty to that 13000 mark? A: That is still a very conjectural, theoretical surmise but that is the kind of potential we have on the markets and will take a long time. The earliest will take about a couple of years and within that sense, let’s go by the process of elimination. And I would also like to make one more point here which is a phenomenon that has returned to market after almost 10-15 years. See if currency has been depreciating, broadly that is the trend on the rupee- the long term trend, and still equity markets are going up, this has happened seldom in the last 10-12 years. But that was the kind of theme that played out in the 80s in the United States as well as in India. During the days or weeks when the rupee will be very weak, there will be certain sectors that will correct much lesser than the level of appreciations you will see in those sectors during the time when rupee is strong say sectors like IT or pharma. I won’t be really surprised despite the fact that these look to be very overbought on the short term and despite 10-20 percent correction that can always seep into them, these might still be the engines for the next couple of years, the so called defensives. This bull market is appearing so much more like a rally with narrow participation, most people having a feeling of being left out even at the institutional level. So it may not be surprising that the so-called defensives only may still be the engines of this bull market ahead. We may not ever see, it is not necessary that we have to see a secular participation from all the cyclicals.

Latha: The comfort zone you have in terms of the near term when if the markets were to go to the 7700 mark which would be the leaders that would take them there or which would be worst of the laggards? A: As of now the banks are going to be basically driving the movement each side. So I don’t see them to be the exceptional stocks. They are rather the stocks that will take them to the downside. Rather the consensus on IT and pharma that have been so far falling is where the upside risk is for any bear. Those are the sectors to watch out and once this bottom of 7700 — that is also not sacred — is taken out we will see that gains will again come back and be driven by these so called defensives only. Latha: What are the various themes that you will be discussing? Tell us about your conclave really? A: There are so many formats of analysing markets. The fundamentals are primarily more popular and in the recent decades there has been so much of quantitative refinement. And technical analysis? Somehow I felt it is the universal language of markets. You speak the same language across any asset class, so we have representation across market outlooks on equities, bonds, currencies, rate, commodities. Why technical analysis is the universal language of the markets is because you can discuss markets on a one-year time frame to a one-decade time frame using the same thought process which is what is absent truly when we apply that for fundamentals or quantitative. So we tried capturing that theme — representation of all asset classes and all kinds of analytical styles and we have fused in a heavy dose of quantitative and algorithmic trading and hopefully with so many experts gathering together and a lot of serious market participants gathering together over a three-day period there should be useful networking and brewing of new and fresh ideas.